On September 16, a Chinese-owned shoe warehouse was burnt down in Elche, Spain, causing damages worth over 1 million euro. This incident sounds a warning to China's developing foreign trade sector that "made in China" commodities need to go beyond ultra-low pricing to establish their position in the long term.

On the evening of the arson, several hundred Elche locals crowded into the Karus industrial area, where many Chinese shoe wholesalers are based, throwing rocks at shops and shouting protests. Around 20 locals then set fire to a shoe-filled warehouse owned by Chinese entrepreneur Chen Jiusong. All the stock was destroyed, but thankfully no one was hurt. A week later some Elche locals staged another, more peaceful, demonstration against Chinese shoemakers.

Wang Changchuan, manager of the Spanish branch of Wenzhou Jierda Shoes Company, told China Newsweek: "Our hearts still flutter with fear." The shops are now operating normally again, though they do sometimes shut earlier than they used to.

Local police have attached great importance to this incident, stationing many officers around the area to avoid further problems, said Wang, adding that now any demonstrations must first be approved by the government so that police may inform Chinese shops to close ahead of them.

Chen Jiusong has employed lawyers to handle the incident but it is hard to say whether the loss can be reclaimed, according to Wang.

The Chinese Embassy in Spain, Ministry of Foreign Affairs, Ministry of Commerce and China Leather Society all responded quickly, asking Spain to guarantee the security of Chinese residents and punishment of the attackers, as well as compensation for the affected businessmen. By September 23, fifteen protesters had been arrested.

A Spanish news agency, EFE, reported that after the attacks anonymous posters had been spotted in Elche, claiming that local shoemakers are in crisis because of competition from Asian, and especially Chinese, manufacturers.

Elche is a traditional shoemaking base for Spain and for Europe as a whole. In recent years an increasing number of Chinese shoemakers have come to the area with low priced shoes to register companies and rent or buy shops. Manufacturers from Japan and Vietnam have followed suit, but Chinese (mainly from southeast China's Wenzhou City) dominate.

As the Spanish government has yet to instigate measures to protect local producers, Chinese and Spanish shoemakers have been competing in an open market. This has had a detrimental effect on Elche's local industry, with over half local manufacturers closing and only the lower end of the market able to match prices.

Yu Jinhua, the board chairman of Wenzhou Jierda Shoe Company, denied that shoes are sold at 3 to 5 euros in Elche. "It's just domestic factory price. Considering customs and transportation costs, the wholesale price of tanned hide shoes is usually 8 euros, while that of leather shoes is 12 to 15 euros," said Yu when interviewed with China Newsweek. This is still half the price of local producers' shoes since cheap labor costs give Chinese manufacturers a competitive edge.

Wang Changchun said that only a few Spanish people were involved in the arson and that most people are still friendly to Chinese. "I don't feel discrimination against us in my business and life," he said.

The Elche event is the first example of such violence against Chinese in Spain. "Instead of taking extreme actions, the European Union has been rather gentle towards China-made industries," said Zhang Hanlin, director of the China National Institute of the WTO with the University of International Business and Economics, "So don't exaggerate this event, it can be solved through legal means. The event sends a warning to us."

As of January 1, 2005, the EU will lift import quotas on some categories of China-made shoes. This will not only offer a bigger market share for Wenzhou shoe manufacturers in Europe but may also usher in more trade disputes.

At the 2nd International Anti-Dumping Forum in Beijing last October, Zhang predicted that the year 2005 will see more foreign countries charging China with goods dumping and the start of other trade conflicts.

Though China has industrial associations and trade unions, their functions are limited since they are run under civil affairs departments while enterprises are administered by industrial and commercial departments.

Chinese businesspeople in Spain established an emergency group only in the wake of the shoe-burning incident. There should be industrial associations composed of professionals and business representatives set up before these incidents take place to prevent possible frictions through negotiation and exchanges with foreign organizations.

"China must also establish an international market distribution network," said Zhang. "Relying only on salesmen will result in China sinking into a vicious circle of low-prices, anti-dumping and trade frictions."